Notes to Rondo's Balance Sheet: Bank Loan Information Original Amount Borrowed 15,000,000 Amount Outstanding Dec 31, 2019 7,500,000 Interest Rate 6.00% Principal Payment Amt per Year 2,500,000 Year of Final Payment 2022 Interest & Principal Pmts Due December 31 Mortgage Bond Information Original Amount Borrowed 5,000,000 Amount Outstanding Dec 31, 2019 5,000,000 Coupon Interest Rate 7.50% Principal Payment Amt per Year 500,000 Principal Payments Begin in Year 2024 Year of Final Payment 2033 Interest and Principal Pmts Due December 31

Rondo 3 Financial Forecast

Use an 8% annual growth rate for sales Balance sheet o All assets will grow at the same rate as sales

o Liabilities - Accounts payable and accruals will grow at the same rate as sales; use the assumptions in the case re the mortgage bond and the bank loan (note that the bank loan is included in both current and long-term liabilities) Income statement o Operating expenses (all expenses subtracted to get to EBIT) grow at the same rate as sales o Interest expense - use the interest rates for the bank loan and the mortgage bond as given in the case; apply to the ending debt balances for the prior year to calc the expense for each year (similar approach to that for Week 2 MindTap Ques 9 (text problem 12-08) and Week 2 example text problem 12-9 o Income tax rate = 25% (not the 40% historical rate for 2017 2019)

Other o Use the 2019 dividend payout ratio for all forecast years o Include an AFN reconciliation for each year

Exec summary - please discuss (i) the components/drivers of AFN, and (ii) one potential opportunity Rondo has to internally finance the AFN Hints o Interest expense o AFN

BALANCE SHEET (as of 12/31) ASSETS \begin{tabular}{lrrr} Current Assets & & & \\ Cash & 1,469,000 & 2,032,500 & 2,460,000 \\ Accounts Receivable & 9,000,000 & 9,375,000 & 9,750,000 \\ Inventory & 4,125,000 & 4,625,000 & 5,250,000 \\ \cline { 2 - 4 } Total Current Assets & 14,594,000 & 16,032,500 & 17,460,000 \\ & & & \\ PPE & & & \\ Equipment & 19,000,000 & 18,375,000 & 17,500,000 \\ Property and Plant & 16,000,000 & 15,375,000 & 14,750,000 \\ \cline { 2 - 4 } Total PP\&E & 35,000,000 & 33,750,000 & 32,250,000 \\ & & & \\ \hline TOTAL ASSETS & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} LIABILITIES Current Liabilities \begin{tabular}{lccc} Accounts Payable & 1,500,000 & 2,250,000 & 2,500,000 \\ Current Portion of Bank Loan & 2,500,000 & 2,500,000 & 2,500,000 \\ Accruals & 3,375,000 & 3,500,000 & 3,750,000 \\ \cline { 2 - 4 } Total Current Liabilities & 7,375,000 & 8,250,000 & 8,750,000 \end{tabular} Long-Term Debt Bank Loan Mortgage Bond Total Long-Term Debt \begin{tabular}{lrrr} \hline \multicolumn{1}{c}{ Total Liabilities } & 22,375,000 & 20,750,000 & 18,750,000 \\ \hline & & & \\ Equity & & & \\ Common Stock & 9,587,500 & 9,587,500 & 9,587,500 \\ Retained Earnings & 17,631,500 & 19,445,000 & 21,372,500 \\ \cline { 2 - 4 } Total Equity & 27,219,000 & 29,032,500 & 30,960,000 \\ & & & \\ \hline TOTAL LIABILITIES \& EQUITY & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} INCOME STATEMENT (for year ending 12/31) BALANCE SHEET (as of 12/31) ASSETS \begin{tabular}{lrrr} Current Assets & & & \\ Cash & 1,469,000 & 2,032,500 & 2,460,000 \\ Accounts Receivable & 9,000,000 & 9,375,000 & 9,750,000 \\ Inventory & 4,125,000 & 4,625,000 & 5,250,000 \\ \cline { 2 - 4 } Total Current Assets & 14,594,000 & 16,032,500 & 17,460,000 \\ & & & \\ PPE & & & \\ Equipment & 19,000,000 & 18,375,000 & 17,500,000 \\ Property and Plant & 16,000,000 & 15,375,000 & 14,750,000 \\ \cline { 2 - 4 } Total PP\&E & 35,000,000 & 33,750,000 & 32,250,000 \\ & & & \\ \hline TOTAL ASSETS & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} LIABILITIES Current Liabilities \begin{tabular}{lccc} Accounts Payable & 1,500,000 & 2,250,000 & 2,500,000 \\ Current Portion of Bank Loan & 2,500,000 & 2,500,000 & 2,500,000 \\ Accruals & 3,375,000 & 3,500,000 & 3,750,000 \\ \cline { 2 - 4 } Total Current Liabilities & 7,375,000 & 8,250,000 & 8,750,000 \end{tabular} Long-Term Debt Bank Loan Mortgage Bond Total Long-Term Debt \begin{tabular}{lrrr} \hline \multicolumn{1}{c}{ Total Liabilities } & 22,375,000 & 20,750,000 & 18,750,000 \\ \hline & & & \\ Equity & & & \\ Common Stock & 9,587,500 & 9,587,500 & 9,587,500 \\ Retained Earnings & 17,631,500 & 19,445,000 & 21,372,500 \\ \cline { 2 - 4 } Total Equity & 27,219,000 & 29,032,500 & 30,960,000 \\ & & & \\ \hline TOTAL LIABILITIES \& EQUITY & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} INCOME STATEMENT (for year ending 12/31)